6th April 2015
The 2014 budget announced major changes affecting individuals with Defined Contribution (Money Purchase) Pension Plans. These came into force from 6th April 2015 meaning individuals have more choice of what to do when they decide to access their pension savings.
There is no longer a requirement to buy an annuity although this remains a valuable option. In addition to the traditional income options (annuity/drawdown) you are now able to take your pension savings, also often called your pension pot, as a Cash Lump Sum either in full or in part.
More Options, More Choice
You decide how you want to take your money from your pension pot when you retire. You do not have to be retiring to take your pension benefits, nor do you have to take your pension benefits if you are retired. Anyone aged 55 and over can access their pension savings.
Forester Life will send a Retirement Pack to you 4 months before your retirement date and this will detail the different options available. If you wish to retire earlier than your original intended retirement date you can call Customer Services for a Retirement Pack.
Forester Life continues to offer annuities with a range of options to provide a guaranteed income for life and is also offering an option for those who wish to take their pension savings as a Cash Lump Sum. If this option is selected 25% of the pension pot will be tax-free and 75% will be taxed as earned income at your marginal tax rate.
In some cases it may be possible to take part of your pot as a Cash Lump Sum. If this option is available, and you choose to do this, then 25% of each withdrawal is tax-free and 75% taxed as earned income at your marginal tax rate. This option will also enable you to continue contributing to your pension up to allowable limits (currently £10,000 a year overall including tax relief).
You can also mix your options by accessing your funds at different times and in different ways if you have more than one pension plan. Taking part of your pension fund as a Cash Lump Sum, and then at a later date using the remaining fund to purchase an annuity, is another example of mixing your options to suit your particular circumstances.
Other options also exist for accessing your pot, such as flexi-access drawdown. Forester Life does not offer this option.
Deciding what you should do with your pension savings is very important as once you have chosen your options you will not usually be able to change them later on. The Retirement Pack will provide details of the options and how to choose them.
As well as thinking about how long your money needs to last (many people underestimate their life expectancy), how much money you’ll have in retirement, and taking into account tax and any benefit implications, you should also be aware of pension ‘scams’. These scams, in which criminals try to cheat people out of their pension pots, are increasing and involve unregulated and quite often illegal investments. They often begin by someone contacting you unexpectedly by telephone, text or email.
You need to consider all of the risks involved before you make your final decision.
We hope that you are satisfied with your Pension Plan with Forester Life, but you are not obliged to use your pension savings to buy a retirement product from us. In fact, most people get a better retirement income by shopping around for the best deal and this is something Foresters has always encouraged.
Moving your pension pot to another provider could give you access to a wider range of annuities and a higher income. This may be especially useful as some providers offer higher annuity rates if you have a medical condition or smoke.
You should take your time to shop around.
Final Salary Pension Schemes
You may have some (or all) of your pension savings in a Final Salary or Defined Benefit Pension Scheme, provided by your employer. Such schemes are not subject to the Pension Reforms and pension flexibility can only be accessed by first transferring to a Defined Contribution Scheme. Some restrictions apply to these transfers, for example you cannot transfer out of some (unfunded) Government pension schemes and if your Defined Benefit pension is worth over £30,000 you may transfer it only after seeking specialist independent advice.
Pension Wise is an organisation set up by the Government to provide impartial guidance to every individual wishing to access their pension savings. Forester Life recommends that every customer seeks guidance from Pension Wise before selecting their pension options. This service is free to all individuals. Details of how to contact Pension Wise to arrange an appointment is included in the Retirement Pack.
Questions and Answers
Doesn’t my pension plan automatically convert to a pension when I retire?
No, you need to tell us what you want to do with your pension pot. You will receive a Retirement Pack about 4 months before your retirement date which will tell you about the options you have and how to select the options you want.
I have decided not to retire at this time, what options do I have?
You may defer the retirement date of your pension plan and leave your pension pot untouched until you need the money. You should contact Pension Wise before choosing your pension options.
What is a pension pot?
This is the value of your pension plan. Details are on your latest Pension Statement.
Should I contact Pension Wise?
Choosing your pension options is one of the most important decisions you will make in your lifetime and once you have chosen your options you will not usually be able to change them later on. Foresters therefore recommends that all pension customers contact Pension Wise before choosing their pension options.
What is an annuity?
A type of insurance plan that pays a guaranteed regular income until you die in exchange for a lump sum. A pension annuity is sometimes called a lifetime annuity.
Why can’t you give me advice?
Retirement options are a specialist topic and Forester Life is not able to provide advice. Instead we provide information only, including risk warnings in the Retirement Pack, and encourage you to contact Pension Wise as well as shop around.
How do I shop around?
You may contact other providers directly, look at their websites or seek advice. It is likely that you will be charged for any advice you receive. You can compare basic annuity products using the Money Advice Service comparison table on their website.
What is flexi-access/income drawdown?
A scheme under which you place your pension pot into an investment fund and take regular withdrawals as income. Forester Life does not offer a drawdown scheme. In view of the risks involved you should consider seeking specialist financial advice if you are thinking of a drawdown scheme.
How do I transfer my pension pot to an income drawdown scheme?
Your chosen provider will contact Forester Life to transfer the pot to them.
Can I take all of my pension pot as a Cash Lump-Sum?
Yes. You may alternatively be able to take part of your pension pot as cash.
What about tax?
You are entitled to take 25% of your pension pot as a tax-free lump sum if you choose an income option (annuity or drawdown). The income payments thereafter are taxed as earned income. However if you wish to take your pension pot as a Cash Lump Sum, either in full or in part, then 25% of each payment is tax-free and the remaining 75% taxed as earned income. You need to carefully consider the tax implications of the pension options you choose.